MARTHEOPHILUS TRAINING COLLAGE

PRACTICUM
TOPIC: ROBERT LUCAS JR (Economist Nobel Price
Winner 1995)

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Bindu Mam
Shamna M
Social Science
Social Science

Robert Emerson Lucas, Jr

Robert Emerson Lucas, Jr. (born September 20, 1937) is an American

economist at the University of Chicago. He received the Nobel Memorial Prize in
Economic Sciences in 1995. He has been characterized by N. Gregory Mankiw as
"the most influential macroeconomist of the last quarter of the 20th century."

Biography
He was born in 1937, in Yakima, Washington, the oldest child of Robert
Emerson Lucas and Jane Templeton Lucas.
He received his B.A. in History in 1959 and Ph.D. in Economics in 1964, both
from the University of Chicago. Lucas studied economics for his PhD on "quasiMarxist" grounds. He believed that economics was the true driver of history, and so
he planned to fully immerse himself in economics and then migrate back to the
history department.[2] Following graduation, Lucas taught at the Graduate School

of Industrial Administration (now Tepper School of Business) at Carnegie Mellon

University until 1975, when he returned to the University of Chicago.
His ex-wife, Rita Lucas, upon their divorce in 1988, had a clause placed in
their divorce settlement that she would receive half of any Nobel Prize won by
Lucas in the next seven years. When Lucas did win the Nobel Prize in 1995
(falling just within the time limit), she was awarded half of the prize money. He
has lived with Nancy Stokey. They have collaborated in papers on growth theory,
public finance, and monetary theory.
Robert Lucas has three sons, Stephen Lucas and Joseph Lucas.
A collection of Lucas' papers are housed at the Rubenstein Library at Duke
University.

Contributions
Rational expectations
Lucas is well known for his investigations into the implications of the
assumption of rational expectations. Lucas (1972) incorporates the idea of rational
expectations into a dynamic general equilibrium model. The agents in Lucas's
model are rational: based on the available information, they form expectations
about future prices and quantities, and based on these expectations they act to
maximize their expected lifetime utility. He also provide sound theoretical
fundamental to Milton Friedman and Edmund Phelps's view of the long-run
neutrality of money, and provide an explanation of the correlation between output
and inflation, depicted by the Phillips curve.

Lucas critique
Lucas (1976) challenged the foundations of macroeconomic theory (previously
dominated by the Keynesian economics approach), arguing that a macroeconomic
model should be built as an aggregated version of microeconomic models (while
noting that aggregation in the theoretical sense may not be possible within a given
model). He developed the "Lucas critique" of economic policymaking, which holds

that relationships that appear to hold in the economy, such as an apparent

relationship between inflation and unemployment, could change in response to
changes in economic policy. This led to the development of new classical
macroeconomics and the drive towards microeconomic foundations for
macroeconomic theory.

Other contributions
He developed a theory of supply that suggests people can be tricked by
unsystematic monetary policy; the UzawaLucas model (with Hirofumi Uzawa) of
human capital accumulation; and the "Lucas paradox", which considers why more
capital does not flow from developed countries to developing countries. Lucas
(1988) is a seminal contribution in the economic development and growth
literature. Lucas and Paul Romer heralded the birth of endogenous growth theory
and the resurgence of research on economic growth in the late 1980s and the
1990s.
He also contributed foundational contributions to behavioral economics, and
has provided the intellectual foundation that enables us to understand deviations
from the law of one price based on the irrationality of investors.
In 2003, he proclaimed, the central problem of depression-prevention has
been solved, for all practical purposes, and has in fact been solved for many
decades.
AWARDS
Robert Lucas was awarded the 1995 Nobel Prize in economics
for having developed and applied the hypothesis of rational
expectations, and thereby having transformed macroeconomic
analysis and deepened our understanding of economic policy.
More than any other person in the period from 1970 to 2000,
Robert Lucas revolutionized macroeconomic theory. His work led
directly to the pathbreaking work of finn kydland and edward
Prescott , which won them the 2004 Nobel Prize.

Before the early 1970s, wrote Lucas, two very different styles
of macroeconomic theory, both claiming the title of Keynesian
economics, co-existed. One was an attempt to make
macroeconomics fit with standard microeconomics.The problem
with this was that such models could not be used to make
predictions. The other style was macroeconometric models (see
forecasting and econometric models) that could be fit to data and
used to make predictions but that did not have a clear
relationship to economic theory. Many economists were working
to unify the two, but economists themselves saw the results as
unsatisfactory.
They reasoned that the short-run trade-off existed because
when the government increased the growth rate of the money
supply, which increased prices, workers were fooled into
accepting wages that appeared higher in real terms than they
really were; they accepted jobs sooner than they otherwise would
have, thus reducing unemployment. Lucas took the next step by
formalizing this thinking and extending it. He pointed out that in
standard microeconomics, economists assume that people are
rational. He extended that assumption to macroeconomics,
assuming that people would come to know the model of the
economy that policymakers use; thus the term rational
expectations. This meant that if, say, the government increased
the growth rate of the money supply to reduce unemployment, it
would work only if the government increased money growth more
than people expected, and the sure long-term effect would be
higher inflation but not lower unemployment. In other words, the
government would have to act unpredictably.